Watson CPA Group - Knowledgebase

Knowledgebase

How do partial years work with the foreign earned income exclusion?

Article ID: 27
Last updated: 12 Nov, 2014
Revision: 6
print  Print
share  Share
comment  Add comment
Views: 0
Comments: 0

By Jason Watson ()

For 2014, you can exclude a maximum of $99,200 for single taxpayers. However, you must pro-rate this amount for partial years.  So, let’s say you earned $40,000 in 2014 and you started your foreign job on July 1. You would be eligible for 183 days-worth of the $99,200 exclusion, or $49,736 (183/365 x $99,200 or $271.78 per day).

But, if you earned $40,000 in 2014, and started your job on September 1, you would be eligible for 121 days-worth of the $99,200 exclusion or $32,885. So $7,115 would not be excluded and would be taxable income on your US tax return.

Jul 1 Sep 1
Income $40,000 $40,000
Days Abroad 183 121
Exclusion Limit $49,736 $32,885
Excluded Income $40,000 $32,885
Taxable Income $0 $7,115

Lastly, the money you earned in the United States for the first part of the partial year is not excluded- to the qualify for the exclusion, it must be earned while residing or being present in a foreign country.

Side Note: Pro-rated years must be handled properly. Typically, the Watson CPA Group will prepare your tax returns during the tax season to determine tax consequences before you are eligible and sit on them. Extensions do not give you an extension to pay. For example, you leave September 1 2014. We prepare your tax returns in spring of 2015 and sit on it until you are eligible to file. However, if you owe taxes to either the IRS or the state, then you can make that payment on April 15 2015 and we file your tax returns on August 30 2015 (using this example). This avoids failure to pay interest and penalties.

This article was:   Helpful | Not helpful Report an issue


Also read
item What is foreign earned income exclusion?
item What amount can I deduct for foreign earned income exclusion?
item How do I qualify for the foreign earned income exclusion?
item What is the bona fide residence test?
item What is the physical presence test?
item Are there exceptions to the bona fide residence or physical presence tests?
item Do I have to pass the same test each year?

Prev     Next
What amount can I deduct for foreign earned income exclusion?       How do I qualify for the foreign earned income exclusion?